Leases

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

Leases

Leases

The Company is a party to certain operating and finance leases for vehicles, office space and storage facilities. The Company’s material operating leases consist of office space, as well as storage facilities and finance leases consist of automobile leases. The Company’s leases generally have remaining terms of one to 10 years, some of which include options to renew the leases for up to five years. The Company leases space for operations in the United States, Japan, Belgium, France, and Spain.

The Company determines if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates the incremental secured borrowing rates corresponding to the maturities of the leases. The Company based the rate estimates on prevailing financial market conditions, credit analysis, and management judgment.

Tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. 

Supplemental balance sheet information related to leases was as follows (in thousands):

Leases	Classification	September 30, 2023		December 31, 2022
Assets
Right-of-use assets	Operating lease right-of-use assets	$	10,690	$	12,831
Finance lease	Property and equipment, net	1,825		1,606
Total leased assets		$	12,515	$	14,437

Liabilities	Classification	September 30, 2023		December 31, 2022
Operating lease liabilities
Operating lease liabilities, current	Operating lease liabilities	$	2,511	$	2,810
Operating lease liabilities, non-current	Operating lease liabilities, net of current portion	9,466		11,352
Total Operating lease liabilities		$	11,977	$	14,162
Finance lease liabilities
Finance lease liabilities, current	Accrued liabilities	$	818	$	485
Finance lease liabilities, non-current	Other long-term liabilities	1,052		825
Total Finance lease liabilities		$	1,870	$	1,310

Lease costs during the three and nine months ended September 30, 2023 and 2022 (in thousands) was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
Lease costs	Classification	2023		2022		2023		2022
Finance lease cost	Amortization expense	$	209	$	148	$	507	$	487
Finance lease cost	Interest for finance lease	$	23	$	17	$	61	$	54
Operating lease cost	Operating lease expense	$	921	$	883	$	2,701	$	2,678

Cash paid for amounts included in the measurement of lease liabilities during the nine months ended September 30, 2023 and 2022 was as follows (in thousands):

		Nine Months Ended September 30,
Cash paid for amounts included in the measurement of lease liabilities	Classification	2023		2022
Operating cash flow	Finance lease	$	62	$	56
Financing cash flow	Finance lease	$	386	$	391
Operating cash flow	Operating lease	$	2,449	$	1,682

Operating leases

Maturities of facility leases were as follows as of September 30, 2023 (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	814
2024	2,924
2025	2,932
2026	3,027
2027	3,130
2028 and thereafter	462
Total lease payments	13,289
Less: imputed interest	1,312
Present value of lease liabilities	$	11,977

Finance Leases

As of September 30, 2023, the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable finance (vehicle) leases as follows (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	251
2024	878
2025	600
2026	341
Total lease payments	2,070
Less: imputed interest	200
Present value of lease liabilities	$	1,870

Weighted-average remaining lease term and discount rate, as of September 30, 2023, were as follows:

Lease Term and Discount Rate	September 30, 2023
Weighted-average remaining lease term (years)
Operating leases	4.4
Finance leases	2.5
Weighted-average discount rate
Operating leases	4.8	%
Finance leases	8.9	%

Lessor - AviClear

Lessor revenue

The Company leases the AviClear device to customers and receives a fixed annual license fee over the term of the arrangement and variable revenue related to the number of treatments performed by the lessee. The contractual term of the lease agreement is three years with a one-year auto-renewal feature. Certain lease agreements' terms in excess of one year can be terminated without financial penalty, and these agreements are accounted for as having a lease term of one year. The AviClear lease agreements are accounted for as operating leases. The fixed annual license fee is recognized evenly throughout the period of the lease agreement on a straight-line basis. The treatment revenue is recognized in the period the lessee has the ability to perform the patient treatment.

The following table summarizes the amount of operating lease income included in product revenue in the accompanying condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
AviClear operating lease license fee revenue	$	1,324	$	246	$	3,916	$	285
AviClear operating lease revenue	2,565		909		8,504		1,006
Total AviClear revenue	$	3,889	$	1,155	$	12,420	$	1,291

The AviClear device being leased has a useful life of seven years. The Company expects that a device will be leased for two consecutive lease terms at the end of which its residual value will be immaterial.

The following is the minimum future lease payments as of September 30, 2023, under non-cancelable operating leases, assuming the minimum contractual lease term (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	1,082
2024	5,924
2025	3,476
Total AviClear revenue	$	10,482

Practical Expedients

The Company elected to apply a practical expedient to operating leases and elected not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer. As such, updates or upgrades on a when-and-if available basis to the AviClear device are combined with the operating lease revenue. The combined component is being accounted for under ASC 842. Additionally, the Company made an accounting policy election to present AviClear revenue net of sales and other similar taxes.

Capitalized sales commissions

Sales commissions related to obtaining AviClear lease agreements are accounted for as initial direct costs and are capitalized and amortized on a straight-line basis over the lease term. Amortization expenses for these assets were $1.2 million and $3.5 million for the three and nine-month periods ended September 30, 2023, respectively, and $0.1 million and $0.1 million for the comparative periods ended September 30, 2022, and were included in Sales and marketing expense in the Company’s condensed consolidated statement of operations. Total capitalized commissions as of September 30, 2023, and December 31, 2022, were $3.4 million and $3.3 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.

Lease installment costs

The Company capitalizes fulfillment costs incurred before AviClear lease commencement and these costs include freight, installation, and training costs. Amortization expenses for these assets were $0.7 million and $1.7 million for the three and nine-month periods ended September 30, 2023, respectively, and immaterial amounts for the comparative periods ended September 30, 2022, and were included in Cost of revenue in the Company’s condensed consolidated statement of operations. Total lease installment costs as of September 30, 2023, and December 31, 2022, were $2.6 million and $1.3 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.

Leases

Leases

The Company is a party to certain operating and finance leases for vehicles, office space and storage facilities. The Company’s material operating leases consist of office space, as well as storage facilities and finance leases consist of automobile leases. The Company’s leases generally have remaining terms of one to 10 years, some of which include options to renew the leases for up to five years. The Company leases space for operations in the United States, Japan, Belgium, France, and Spain.

The Company determines if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates the incremental secured borrowing rates corresponding to the maturities of the leases. The Company based the rate estimates on prevailing financial market conditions, credit analysis, and management judgment.

Tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. 

Supplemental balance sheet information related to leases was as follows (in thousands):

Leases	Classification	September 30, 2023		December 31, 2022
Assets
Right-of-use assets	Operating lease right-of-use assets	$	10,690	$	12,831
Finance lease	Property and equipment, net	1,825		1,606
Total leased assets		$	12,515	$	14,437

Liabilities	Classification	September 30, 2023		December 31, 2022
Operating lease liabilities
Operating lease liabilities, current	Operating lease liabilities	$	2,511	$	2,810
Operating lease liabilities, non-current	Operating lease liabilities, net of current portion	9,466		11,352
Total Operating lease liabilities		$	11,977	$	14,162
Finance lease liabilities
Finance lease liabilities, current	Accrued liabilities	$	818	$	485
Finance lease liabilities, non-current	Other long-term liabilities	1,052		825
Total Finance lease liabilities		$	1,870	$	1,310

Lease costs during the three and nine months ended September 30, 2023 and 2022 (in thousands) was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
Lease costs	Classification	2023		2022		2023		2022
Finance lease cost	Amortization expense	$	209	$	148	$	507	$	487
Finance lease cost	Interest for finance lease	$	23	$	17	$	61	$	54
Operating lease cost	Operating lease expense	$	921	$	883	$	2,701	$	2,678

Cash paid for amounts included in the measurement of lease liabilities during the nine months ended September 30, 2023 and 2022 was as follows (in thousands):

		Nine Months Ended September 30,
Cash paid for amounts included in the measurement of lease liabilities	Classification	2023		2022
Operating cash flow	Finance lease	$	62	$	56
Financing cash flow	Finance lease	$	386	$	391
Operating cash flow	Operating lease	$	2,449	$	1,682

Operating leases

Maturities of facility leases were as follows as of September 30, 2023 (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	814
2024	2,924
2025	2,932
2026	3,027
2027	3,130
2028 and thereafter	462
Total lease payments	13,289
Less: imputed interest	1,312
Present value of lease liabilities	$	11,977

Finance Leases

As of September 30, 2023, the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable finance (vehicle) leases as follows (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	251
2024	878
2025	600
2026	341
Total lease payments	2,070
Less: imputed interest	200
Present value of lease liabilities	$	1,870

Weighted-average remaining lease term and discount rate, as of September 30, 2023, were as follows:

Lease Term and Discount Rate	September 30, 2023
Weighted-average remaining lease term (years)
Operating leases	4.4
Finance leases	2.5
Weighted-average discount rate
Operating leases	4.8	%
Finance leases	8.9	%

Lessor - AviClear

Lessor revenue

The Company leases the AviClear device to customers and receives a fixed annual license fee over the term of the arrangement and variable revenue related to the number of treatments performed by the lessee. The contractual term of the lease agreement is three years with a one-year auto-renewal feature. Certain lease agreements' terms in excess of one year can be terminated without financial penalty, and these agreements are accounted for as having a lease term of one year. The AviClear lease agreements are accounted for as operating leases. The fixed annual license fee is recognized evenly throughout the period of the lease agreement on a straight-line basis. The treatment revenue is recognized in the period the lessee has the ability to perform the patient treatment.

The following table summarizes the amount of operating lease income included in product revenue in the accompanying condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
AviClear operating lease license fee revenue	$	1,324	$	246	$	3,916	$	285
AviClear operating lease revenue	2,565		909		8,504		1,006
Total AviClear revenue	$	3,889	$	1,155	$	12,420	$	1,291

The AviClear device being leased has a useful life of seven years. The Company expects that a device will be leased for two consecutive lease terms at the end of which its residual value will be immaterial.

The following is the minimum future lease payments as of September 30, 2023, under non-cancelable operating leases, assuming the minimum contractual lease term (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	1,082
2024	5,924
2025	3,476
Total AviClear revenue	$	10,482

Practical Expedients

The Company elected to apply a practical expedient to operating leases and elected not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer. As such, updates or upgrades on a when-and-if available basis to the AviClear device are combined with the operating lease revenue. The combined component is being accounted for under ASC 842. Additionally, the Company made an accounting policy election to present AviClear revenue net of sales and other similar taxes.

Capitalized sales commissions

Sales commissions related to obtaining AviClear lease agreements are accounted for as initial direct costs and are capitalized and amortized on a straight-line basis over the lease term. Amortization expenses for these assets were $1.2 million and $3.5 million for the three and nine-month periods ended September 30, 2023, respectively, and $0.1 million and $0.1 million for the comparative periods ended September 30, 2022, and were included in Sales and marketing expense in the Company’s condensed consolidated statement of operations. Total capitalized commissions as of September 30, 2023, and December 31, 2022, were $3.4 million and $3.3 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.

Lease installment costs

The Company capitalizes fulfillment costs incurred before AviClear lease commencement and these costs include freight, installation, and training costs. Amortization expenses for these assets were $0.7 million and $1.7 million for the three and nine-month periods ended September 30, 2023, respectively, and immaterial amounts for the comparative periods ended September 30, 2022, and were included in Cost of revenue in the Company’s condensed consolidated statement of operations. Total lease installment costs as of September 30, 2023, and December 31, 2022, were $2.6 million and $1.3 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.

Leases

Leases

The Company is a party to certain operating and finance leases for vehicles, office space and storage facilities. The Company’s material operating leases consist of office space, as well as storage facilities and finance leases consist of automobile leases. The Company’s leases generally have remaining terms of one to 10 years, some of which include options to renew the leases for up to five years. The Company leases space for operations in the United States, Japan, Belgium, France, and Spain.

The Company determines if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates the incremental secured borrowing rates corresponding to the maturities of the leases. The Company based the rate estimates on prevailing financial market conditions, credit analysis, and management judgment.

Tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. 

Supplemental balance sheet information related to leases was as follows (in thousands):

Leases	Classification	September 30, 2023		December 31, 2022
Assets
Right-of-use assets	Operating lease right-of-use assets	$	10,690	$	12,831
Finance lease	Property and equipment, net	1,825		1,606
Total leased assets		$	12,515	$	14,437

Liabilities	Classification	September 30, 2023		December 31, 2022
Operating lease liabilities
Operating lease liabilities, current	Operating lease liabilities	$	2,511	$	2,810
Operating lease liabilities, non-current	Operating lease liabilities, net of current portion	9,466		11,352
Total Operating lease liabilities		$	11,977	$	14,162
Finance lease liabilities
Finance lease liabilities, current	Accrued liabilities	$	818	$	485
Finance lease liabilities, non-current	Other long-term liabilities	1,052		825
Total Finance lease liabilities		$	1,870	$	1,310

Lease costs during the three and nine months ended September 30, 2023 and 2022 (in thousands) was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
Lease costs	Classification	2023		2022		2023		2022
Finance lease cost	Amortization expense	$	209	$	148	$	507	$	487
Finance lease cost	Interest for finance lease	$	23	$	17	$	61	$	54
Operating lease cost	Operating lease expense	$	921	$	883	$	2,701	$	2,678

Cash paid for amounts included in the measurement of lease liabilities during the nine months ended September 30, 2023 and 2022 was as follows (in thousands):

		Nine Months Ended September 30,
Cash paid for amounts included in the measurement of lease liabilities	Classification	2023		2022
Operating cash flow	Finance lease	$	62	$	56
Financing cash flow	Finance lease	$	386	$	391
Operating cash flow	Operating lease	$	2,449	$	1,682

Operating leases

Maturities of facility leases were as follows as of September 30, 2023 (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	814
2024	2,924
2025	2,932
2026	3,027
2027	3,130
2028 and thereafter	462
Total lease payments	13,289
Less: imputed interest	1,312
Present value of lease liabilities	$	11,977

Finance Leases

As of September 30, 2023, the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable finance (vehicle) leases as follows (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	251
2024	878
2025	600
2026	341
Total lease payments	2,070
Less: imputed interest	200
Present value of lease liabilities	$	1,870

Weighted-average remaining lease term and discount rate, as of September 30, 2023, were as follows:

Lease Term and Discount Rate	September 30, 2023
Weighted-average remaining lease term (years)
Operating leases	4.4
Finance leases	2.5
Weighted-average discount rate
Operating leases	4.8	%
Finance leases	8.9	%

Lessor - AviClear

Lessor revenue

The Company leases the AviClear device to customers and receives a fixed annual license fee over the term of the arrangement and variable revenue related to the number of treatments performed by the lessee. The contractual term of the lease agreement is three years with a one-year auto-renewal feature. Certain lease agreements' terms in excess of one year can be terminated without financial penalty, and these agreements are accounted for as having a lease term of one year. The AviClear lease agreements are accounted for as operating leases. The fixed annual license fee is recognized evenly throughout the period of the lease agreement on a straight-line basis. The treatment revenue is recognized in the period the lessee has the ability to perform the patient treatment.

The following table summarizes the amount of operating lease income included in product revenue in the accompanying condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
AviClear operating lease license fee revenue	$	1,324	$	246	$	3,916	$	285
AviClear operating lease revenue	2,565		909		8,504		1,006
Total AviClear revenue	$	3,889	$	1,155	$	12,420	$	1,291

The AviClear device being leased has a useful life of seven years. The Company expects that a device will be leased for two consecutive lease terms at the end of which its residual value will be immaterial.

The following is the minimum future lease payments as of September 30, 2023, under non-cancelable operating leases, assuming the minimum contractual lease term (in thousands):

As of September 30, 2023	Amount
Remainder of 2023	$	1,082
2024	5,924
2025	3,476
Total AviClear revenue	$	10,482

Practical Expedients

The Company elected to apply a practical expedient to operating leases and elected not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer. As such, updates or upgrades on a when-and-if available basis to the AviClear device are combined with the operating lease revenue. The combined component is being accounted for under ASC 842. Additionally, the Company made an accounting policy election to present AviClear revenue net of sales and other similar taxes.

Capitalized sales commissions

Sales commissions related to obtaining AviClear lease agreements are accounted for as initial direct costs and are capitalized and amortized on a straight-line basis over the lease term. Amortization expenses for these assets were $1.2 million and $3.5 million for the three and nine-month periods ended September 30, 2023, respectively, and $0.1 million and $0.1 million for the comparative periods ended September 30, 2022, and were included in Sales and marketing expense in the Company’s condensed consolidated statement of operations. Total capitalized commissions as of September 30, 2023, and December 31, 2022, were $3.4 million and $3.3 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.

Lease installment costs

The Company capitalizes fulfillment costs incurred before AviClear lease commencement and these costs include freight, installation, and training costs. Amortization expenses for these assets were $0.7 million and $1.7 million for the three and nine-month periods ended September 30, 2023, respectively, and immaterial amounts for the comparative periods ended September 30, 2022, and were included in Cost of revenue in the Company’s condensed consolidated statement of operations. Total lease installment costs as of September 30, 2023, and December 31, 2022, were $2.6 million and $1.3 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.